As businesses and consumers face harsh economic challenges, a loophole in U.S. trade law continues to plague and undermine U.S. manufacturers while giving China a back door into the U.S. market.
This legal loophole has led to an explosion in shipments from China, while legislation passed by the House of Representatives to essentially close this loophole remains in limbo.
This provision of U.S. trade law is now being aggressively used and lets millions of products into the U.S. market duty free that otherwise would be subject to tariffs, penalty tariffs, taxes and customs inspection. Known as the "de minimis" mechanism, it allows a package of goods valued at $800 or less per person to come into the country duty free everyday through e-commerce.
U.S. Customs and Border Protection (CBP) estimates that we are on pace to hit over 1 billion in de minimis shipments this year alone, which equates to approximately 2.7 million shipments a day. This is estimated to be the highest spike in de minimis imports—up from 2 million shipments per day in fiscal year 2021. To provide further context to the alarming nature of this exponential growth in de minimis shipments, CBP data estimates that these shipments totaled only 150 million in fiscal 2016—the year Congress increased the de minimis threshold from $200 to $800.
This astronomical explosion of duty-free shipments to the U.S. jeopardizes U.S. manufacturing jobs, undermines our free trade agreements (where market access is carefully negotiated), and opens a back door for these shipments, including products made by forced labor.
Since Congress raised the duty-free limit for these shipments from $200 to $800 in 2016, foreign competitors have been quick to take advantage of this mechanism.e. Multibillion-dollar Chinese companies, U.S. e-commerce platforms and express shippers are capitalizing on it. This puts American companies at a competitive disadvantage and hurts U.S. manufacturing jobs. A Customs official recently said: "China has a free trade deal with the U.S.: it's called de minimis." Why make a product in the U.S. or a nearby free trade agreement country if you can exploit a legal loophole to get duty-free products to consumers by the click of a button?
A wide range of consumer products, including textiles and apparel, pharmaceutical and health care items, bike helmets and auto parts, make it to our doorsteps with so little scrutiny that we have no idea who is making them, whether they are made with forced labor, or whether they are safe to use.
Perhaps even more alarming is the way this mechanism helps facilitate the importation of products from the Xinjiang region of China, even after Congress overwhelmingly supported the Uyghur Forced Labor Prevention Act to crack down on this illegal trade and the administration banned products from that region. Virtually all Chinese cotton is grown and processed in Xinjiang using the forced labor of the Uyghur Muslim minority population, which has been subjected to countless atrocities that the U.S. government has deemed "genocide." Undoubtedly, millions of products from Xinjiang now slip undetected into the United States through the de minimis loophole.
The Chinese government would never let American companies enjoy similar advantages to sell to their consumers. Its own de minimis threshold is a meager $8. At $800, the United States has one of the highest in the world. While we hold our door wide open, the Chinese government keeps its door virtually shut. An $800 versus $8 limit is hardly a reciprocal arrangement. Instead, we're unilaterally giving China a massive tax and trade concession. The very least we should do is match China's threshold.
American textile manufacturers and those in our regional free trade agreement countries have paid a high price for China's meteoric export growth. China's dominance in global textile and apparel markets—which has led to shuttered U.S. plants and lost jobs—has been aided by substantial state ownership of manufacturing, export subsidies and rampant violations of intellectual property rights. Those abuses are egregious enough without adding in the exploitation of this mechanism.
Lawmakers know how harmful the loophole is and there should be no doubt that it conflicts with core trade policies. The competitiveness legislation passed by passed by the House in February included a provision that would essentially end China's ability to utilize this mechanism. The Senate-passed version of the bill retained the status quo. But the trade sections of both measures, including the de minimis fix, were set aside this summer, leaving unfinished business demanding attention.
There is now talk of Congress taking up some trade-related matters after the midterm elections next month. When lawmakers reconvene for a lame-duck session, they will be fresh off the campaign trail where voters have told them loud and clear that they are concerned about the economy.
Armed with the voters' calls for action on the economy and clear evidence that China is increasingly exploiting the de minimis mechanism, Congress should close this loophole that lets Chinese imports flood the U.S. market through the back door. The integrity of key trade policies depends on it. And the competitiveness of U.S. manufacturers does too.
Kimberly Glas is the president and CEO of the National Council of Textile Organizations and former Commerce deputy assistant secretary for textiles and apparel.
The views expressed in this article are the writer's own.
Uncommon Knowledge
Newsweek is committed to challenging conventional wisdom and finding connections in the search for common ground.
Newsweek is committed to challenging conventional wisdom and finding connections in the search for common ground.
